December 10, 2015


Dear Friends,
For me, the great joy of sound investing is not only the peace of mind and freedom to enjoy my retirement years, but the legacy I plan to leave to my children and the causes I support. As you know, I’m a “numbers guy,” and as I considered how much could be accumulated in a whole lifetime of investing, I came up with the astonishing possibility that $3,000 at birth could become $50 million over 95 years.
While there are many variables and unknowns in the future, even a fraction of $50 million from a small investment, as early in life as possible, can yield a significant amount decades hence. So whether you want to fund a newborn’s or child’s future, or begin your own investment savings as a young adult, this information should help you get started on your way to millions.
Having published the MarketWatch article “How Time Can Turn $3,000 into $50 Million” and my podcast on the subject , I received many questions. I attempt to answer some of them in the Q&A below and more in upcoming newsletters.  All Q&A’s are archived at my website .
I also want to share a couple of recent emails which make all the efforts of my team and me worthwhile. They prove that almost anyone, with a sound strategy and diligence, can invest wisely for their future and that of their children. Sharing the information on my website can make a world of difference for your friends and loved ones. Thank you all for your help in passing our information along to others!
“I have been listening to your podcasts since about 2006 and what a difference it has made! I started just barely being able to make the minimum $3000 deposit in the Vanguard funds and now I have over $300,000 saved toward retirement, but I know that I need to add another zero on to that figure to have a shot at surviving in retirement in 20-30 years.
And then your podcast, about turning $3k into $50 million…We did something similar for child number 1 ($10,000 down and a dollar a day for the future) and are planning on doing the same for child number 2, who arrives in January. We have been using a 529 plan with Vanguard funds rather than a taxable Schwab account in the hope that future generations can have a great education and not just a great trust fund.
So please keep up the good work. It is helping some middle class working people make progress towards a stable retirement. It isn’t easy – I drive a 17-year-old beat up truck – but someday I will drive the nicest vehicle on the block.” – John in Colorado
“A quick note of thanks regarding how your advice has helped me. Most recently we refinanced our mortgage, eliminating 24 payments. That happened because you mentioned how nice it is to get that mortgage paid off before retirement. It made me think about whether a 10-year mortgage would be worth it, and indeed it is! Rates had dropped further than I realized. We saved $9400 doing virtually nothing, other than paying a couple hundred bucks more per month.
We also created an account at Vanguard for each of our young girls, per your million-dollar idea. We are just a few hundred dollars away from hitting the level necessary for them to have a cool million each by the time they turn 60. Wow!
A few years ago I incorporated real estate investment trusts into our IRA portfolios. Another wow. Likewise, we better diversified our holdings per your suggestions and shifted out of the straight target date funds.
I so admire what you are doing in your retirement that I encouraged a physician friend who just retired at age 60 to consider becoming the Paul Merriman of medicine! You two have so much in common I felt your podcasts might be the perfect template for him to emulate. I’d be his Rich Buck!
Finally, I have passed along your books to both my sister and a brother-in-law who need help with the basics. I’ve also tracked down an advisor for another sister through that Garret investment network you informed me about.
Your influence is far and wide and you deserve tremendous credit for the legacy you are creating… and for all you are doing to improve the financial future for those smart enough to listen and act.” –Steve in Madison WI
To your success,



Q: Do you ever come to Vancouver to teach your educational seminars?

A: I am pleased to learn my work is of interest to you. Vancouver B.C. is one of my favorite cities. When I was attending Western Washington University (1963-1966), my wife and I spent a lot of weekends in Vancouver. Plus, in 1942 my mother and father honeymooned there.

I would enjoy doing a workshop in Vancouver but it’s not likely to happen soon. If you feel like coming to Bellevue, WA, I will be keynoting a full day financial workshop February 27, 2016. I will also do a session that focuses on my three favorite topics: asset class selection, asset allocation and distributions.
If that doesn’t work, I have another possibility. I am working on a 3 to 4 hour online presentation that will be used by CPAs to earn continuing education credits. My goal is to also make the presentation available to the public for a small fee. My hope is you will invite your friends come to your home to watch and discuss the video. I might even have time to address a few questions from the group if you have a good speaker phone. Stay tuned!
Q: What’s the best firm and fund to use for your “Turn $3000 into $50M ” strategy?

I listened to the “Turn $3000 into $50M” podcast . This piqued my interest as I have a 2-year-old and one on the way in July. I am not clear, but I assume you suggest putting this money in small-cap value only and nothing else? If so, if you can pick the best firm/fund to go with, which one would it be?
A: I am suggesting using the small-cap value asset class for 95 years, but there is nothing wrong with lots of other equity asset classes that have long histories of good results. Even the S&P 500 is great asset class, but it’s built to produce a minimum of 2% lower annual return than small cap value. I hope you checked out the first pdf on my page of tables, articles and podcasts on the $3000 to $50 million strategy . It makes it easy to compare the results of from 4 to 12 percent annualized returns.
In the recent podcast I suggested using either VTWV at Vanguard or SLYV at Schwab. I also discouraged investors from using funds or ETFs that focus on larger small-cap, and even-mid cap companies.
By the way, you don’t have to put the entire $3000 in immediately.  Remember, the purchases are commission-free so size of investment does not matter. And for those who want to invest less than $1000, TD Ameritrade has several good small-cap choices.
Q: When should I use your  Monthly Income Portfolio vs. the Tax deferred Portfolio?

I am retired, age 67, receiving Social Security. My spouse is 64, working, will retire next year and will wait to collect Social Security at 66. We are not utilizing retirement funds yet and RMD will be more than needed for expenses.

A: Your information suggests you have the ability to have a portion of your investments in equities. The Monthly Income Portfolio is designed for investors who want to put all their investments in bond funds and receive a monthly distribution. In the tax-deferred portfolios, the fixed income is there to stabilize the high volatility of the equity portion of the portfolio. I have spoken to a number of investors who have chosen the Monthly Income Portfolio for the bond portion of the tax-deferred portfolio. That’s okay, but it suggests that the equity portion would be smaller due to the higher volatility of the longer term bonds in the Monthly Income Portfolio.

It might be worth spending an hour with an hourly advisor to see if they agree with my comments in relation to your personal situation.

Q: What’s your opinion on our national debt that keeps piling up?

Is this something that could soon affect the value of stocks and bonds? What can we invest in that would save our assets if the dollar would collapse? If the Fed starts to raise interest rates on a regular basis, would this be some thing we should worry about?  I like index funds but I feel we need something to put dollars in that can convert to something of value if the U.S. dollar goes on a worldwide downward slide. Thanks for being there for us retired guys.

A: I don’t disagree with any of your assumptions. I have a long list of serious concerns, among them our national debt, student debt, low savings rate, the need to compete with smart hardworking people who are willing to work for less and a dysfunctional political system. That’s a very small part of my list of possible problems. To be fair, I have had a long list of concerns since 1966 when I graduated from college. At that time the highest marginal tax rate was 90%. I was shocked to find out that people who made a lot of money still worked hard while paying most of what they made in taxes. I also noted that most investors focused on the same problems I did and tended to invest in those things that recently had done well.
I have tried to build portfolios that attempt to make money in the good times and control losses in the bad times. The biggest defense against market declines is the percentage in bonds. A secondary defense against market declines is to build a portfolio of different equity asset classes. Sometimes that works and sometimes it doesn’t. There are bear markets where all equity classes decline.
Your concern for protecting against losses, due to declines in the U.S. dollar, is addressed by holding a significant position in international equities. Some of the huge returns in international equities came during periods of falling dollars.
In order to address your concern for rising interest rates my fixed income portfolio is built on short-to-intermediate-term maturities. It’s not perfect, as with the rest of my positions, but it is one of the best ways to limit interest rate risk.
And finally, in my own portfolio, I have half of my portfolio in buy and hold , and the other half managed with market timing. With all those defensive aspects, I sleep well but I still don’t like it when the market goes down.
Q: Why are you critical of Vanguard?

Thank you for all of your sage advice and TheUltimate Buy & Hold Portfolio . I first stumbled over your podcasts via I-Tunes in 2010 and I followed your recommendations using the Ultimate Buy & Hold Portfolio with Vanguard Funds . I saved very aggressively over the last 5 years and was able to retire this past March at age 66.
Thanks to my Mom’s advice, I’ve always been a fan of Vanguard so I was disappointed to hear your criticism of their Personal Advisor Service. The low fee of 0.3% can’t be beat; I love the fact that as my holdings in the PAS increases, that fee will decrease. Once my balance is over 5 million, the fee decreases to 0.2%. I’ve designated half of my portfolio to the PAS as a ‘test run’. As I age, I may not be as interested or smart enough to ‘do the right thing’ with my assets. I trust Vanguard’s reputation and history of fiduciary responsibility. I think especially for novice investors, this is a great program. I Skype with my advisor quarterly, so have an opportunity to ask questions. While I’ll agree with you that Vanguard’s PAS is not as ‘bullish’ on REITs, value & small cap funds, it’s still a great idea and service to those with $50,000 or more.
There is no shortage of shady ‘investors’ who bilk people out of their hard earned money. In my community of Norfolk/Virginia Beach I am aware of at least 4 instances published this year. Most of the investors were older and lost their life savings…

That’s why I tell all my friends about Vanguard & the Paul Merriman website !

A: I am pleased you found my information helpful. I think the fee structure at Vanguard is very fair. My complaint is not about the fee structure, but about their recommended asset allocation. As you know, their recommended equity asset allocation is almost entirely committed to large cap and mostly growth companies. In the equity portion of your portfolio, that could be costing you as much as 1 to 2 percent a year. Over the last 15 years, a terrible period for large-cap growth, the difference has been over 2% a year. I agree their Personal Advice Service is great for small accounts, but with some research I know there are well-qualified DFA advisors who will help with as little as $50,000. We have one on Bainbridge Island, where I live, so I know it can be done. As you know, I am a huge fan of Vanguard and John Bogle, but we have big differences in approaches to asset class selection and allocation. As you may remember frommy distribution tables , an extra .5% can double your income and growth in retirement. Thanks for sharingmy website with your friends.
Q: How do you compare Schwab versus Vanguard?
I’m comparing the expense ratios in the tax-deferred portfolios between Vanguard and Schwab, and it looks like Schwab ETFs have significantly lower expense ratios (.07%) compared to Vanguard mutual funds(.23%) (Even the Vanguard ETF expenses are slightly higher than Schwab’s.) Can this be right?
I thought Vanguard had lower expense ratios. I’m planning on creating the tax-deferred portfolios, and it looks like, from an expense standpoint, Schwab might have a slight edge. But would it be worth it? I read in your book, 101 investment Decisions Guaranteed to Change Your Financial Future , you prefer Vanguard over Fidelity (Q65). But,what about Schwab vs Vanguard? Thanks for all you do!
A: I am working on an article comparing Vanguard, Fidelity, Schwab and TD Ameritrade commission-free ETFs. As you have noted, Schwab is a tough competitor on fees as well as asset class availability. I can’t say where fees will go in the future, but I think Schwab will continue to be very competitive. Hopefully my article will be out by the end of the year, but I know Schwab will be on top or very close.
When we wrote our “How To Invest” series with free e-books we didn’t consider Schwab or TD Ameritrade. We probably should do some updating. There are just to many projects and too little time. I’m glad you have found my podcasts and articles helpful.

Q: Regarding your “ Turn $3000 into $50M ” strategy, isn’t 12% wildly optimistic?

I’d say 12% is wildly optimistic, wouldn’t you? But I have tried to transmit the knowledge to my descendants. They need to act upon it. If I were to stake all my descendants to a $3K stake in a Roth IRA, it would cost me $42,000!

A: I agree 12% may be wildly optimistic for small-cap value but it has compounded at over 16% for the last 80 years. It may also be wildly optimistic for the S&P 500 to make 11.1% as it did for the same 80 years. Whatever the return, there is a very high probability that small-cap value will make more than the S&P 500.
You don’t have to give each child $3000. Even $1000 has an important impact. Divide all the numbers by 3, or over $16 million over a lifetime. Or, better yet, multiply 42 times $16,666,666 or $700 million!
Q: Is it possible to build a Fine Tuning Your Asset Allocation s table to reflect the compound rate of return of a simple portfolio that combines U.S. total market, international total market and total bond market? How would this compare to the worldwide globally diversified portfolio?
A: The Total Stock Market Index has a similar portfolio return to the S&P 500.  Over the last 15 years the S&P 500 has a 5% compound rate of return, while the Total Stock Market Index compounded at 5.8%. A portfolio of small-cap blend, small-cap value, large-cap value, REITs, and the S&P 500 would have averaged 8.1%, or a 2.3%, advantage over the Total Stock Market Index. A portfolio of international equity asset class (large, small, and value) has also added over 2% over the Total International Stock Market Index.
I don’t expect we will be producing the fine tuning table for the U.S. and international total market returns. We have produced the table using exclusively the S&P 500 and will likely update that for readers next year.
Q: What do you think of this Emerging Markets allocation?
I have been struggling with one aspect of my Emerging Markets allocation, and would like to get your take. I have split the EM allocation 50/50 large/small. The large cap is in an index fund (ER=0.3%) and the small-cap portion is in the ETF EEMS (ER=0.67%). The ETF is thinly traded, as you might guess, and my question is do you think that heavy exposure to small-cap makes sense even in the EM space – despite the low trading volume and higher expense ratio?
A: While we don’t have 88 years of documented history in the emerging markets, as we do in the U.S., what we do have indicates there is a premium for value and small cap companies in emerging markets. Academics have divided emerging market asset classes into large-cap blend, value, and small cap. From 1989 through 2014, the MSCI Emerging Markets Index (large cap blend) compounded at 10.8%. For the same period, the Emerging Markets Value Index and Small Cap Index compounded at 14.4% and 12.4% respectively.
If an investor is making the investment for the long term, I am not worried about the liquidity of the emerging markets ETFs. In my own emerging markets holdings I have 50% in large cap blend and 25% each in value and small cap.
Q: Do you offer phone consultations?

If not, how can I find a reputable CFP for consultations? We live in Granger, IN.A: I don’t do phone or in-person consultations as I am no longer a licensed investment advisor. Through my articles, books and podcasts I attempt to help do-it-yourself investors make better investment decisions and, for those who want professional help, find the right advisor. In my book ” Get Smart or Get Screwed: How to select the best and get the most out of your financial advisor ,” I include lots of questions for both you and your advisor to answer. This is also available as a free download . Also on my website you’ll find a free copy of Chapter 10 from “Financial Fitness Forever “. The purpose of this chapter is to make sure an investor has addressed the top 12 variables in putting together a financial plan for retirement. If you want to minimize the cost of getting professional advice, this list should prepare you for most of the questions you will address with the advisor.

If you are looking for a Certified Financial Planner to work on an hourly basis, I suggest you review theGarrett Planning Network .  In my experience, most long-term plans can be completed in a few hours of work. If all you want is investment advice, it normally takes no more than one to two hours. The key here is you are looking for someone who will not manage your money but will tell you what to do on your own. If you want to make sure you stay on track, you may choose to have them review your situation annually. I can’t speak to the quality of each Garrett planner but the reports I get are very good.
Here is the link to the page of local Garrett advisorswithin an hour or two from Granger, Indiana.
If you want to have someone manage your money, I would prefer you work with an advisor who uses Dimensional Fund Advisors mutual funds. These are the mutual funds my wife and I use in the buy and hold portion of our retirement investments . I will do a future article and podcast about the advantages of DFA funds. In the meantime, you can go to and request names of advisors in your area. Their advisors are almost all CFPs and they also get special training through the DFA firm. If I look back at my entire life, some of the most exciting days were attending the DFA educational conference. Just for fun, when you talk to a DFA advisor ask them what they thought of the DFA training. I think every one of us comes out of that training believing we have learned something that can really help investors do better. It is their training that is behind most of what I am trying to teach investors through my website. And it is the greatest Wall Street source of information I have found. I hope that helps. Please let me know how it goes.
How time can turn $3,000 into $50 million
As hard as it may be to believe, it’s possible to turn a single $3,000 investment into $50 million in a single lifetime. I can’t say that I have done it, but I’m going to show how you could. More



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